Over the past six months, CDW’s stock price fell to $130.14. Shareholders have lost 10.3% of their capital, which is disappointing considering the S&P 500 has climbed by 9.3%. This may have investors wondering how to approach the situation.
Is now the time to buy CDW, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is CDW Not Exciting?
Even with the cheaper entry price, we’re swiping left on CDW for now. Here are three reasons you should be careful with CDW, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, CDW’s 3.9% annualized revenue growth over the last five years was tepid. This was below our standard for the business services sector.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect CDW’s revenue to rise by 2.8%, close to its 3.9% annualized growth for the past five years. This projection doesn’t excite us and suggests its newer products and services will not lead to better top-line performance yet.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
CDW’s EPS grew at a weak 2% compounded annual growth rate over the last two years, lower than its 4.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
CDW isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 12.2× forward P/E (or $130.14 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are superior stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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